Santa Cruz County mulls marijuana dispensary tax

SANTA CRUZ &GT;&GT; If pot prices in Santa Cruz County are a pocketbook issue, some locals may be about to feel a pinch.

The county is mulling a tax on medical marijuana dispensaries that could go before voters in November. But local operators are crying foul, saying the proposed 7 percent rate is too high and would increase prices for patients.

"It's a pretty significant disadvantage for these folks," said attorney Ben Rice, who works with several pot clubs. "They're all fine with paying money to make this work for everybody, but they also don't want to be put out of business."

Some form of taxation was anticipated as a way to pay for enforcement of a suite of new medical marijuana regulations that went into effect earlier this year. The proposal the county Board of Supervisors is likely to put before voters would allow an adjustable tax of up to 10 percent on the gross receipts of the dozen or so dispensaries operating in unincorporated areas of the county.

Initially, the county sees that rate being set at 7 percent, which is in line with a San Jose tax. Some California counties hit dispensaries with double-digit taxes.

Since the new regulations went into effect earlier this year, county law enforcement and regulatory agencies have been going after growers throughout the Santa Cruz Mountains, targeting "observed" violations of the new marijuana grow rules, including unpermitted clearing and grading.

Chief Administrative Officer Susan Mauriello said those costs add up.

"The staff resources to address the unpermitted activities involve multiple departments and agencies," she said.

But responsible operators aren't pleased they're being asked to pay for enforcement against growers they want nothing to do with.

"It feels a bit like the taxpaying, job-creating, good businesses of Santa Cruz are being forced to pick up the bill and foot the bill for rogue, irresponsible growers that are destroying our environment, which is a shame," said Khalil Moutawakkil, owner of the KindPeoples Collective.

Moutawakkil pointed out dispensaries pay sales taxes, payroll taxes and corporation taxes. Through storefront rents, they also pay local property taxes. And operators not only aren't rich, he said, but they cannot take standard federal tax deductions available to other businesses.

"No dispensary director that I know of is wealthy," Moutawakkil said.

If the county is going to tax dispensaries, operators want to be treated as equals to other businesses — they want permits. The new county rules grant limited immunity, but don't recognize dispensaries as legitimate operations on par with flower shops or convenience stores. They are also asking for the right to grow pot on site, minimizing the need to buy from growers.

At 7 percent, the county hopes to raise $900,000 through the tax to pay for enforcement and other government activities. Dispensary operators say those numbers aren't accurate.

Through the local industry group Association for Standardized Cannabis, some dispensaries say they're willing to share proprietary tax records with the county. They estimate the county could reach the same amount of revenue with a 3 percent tax.

"They're pretty far off," Moutawakkil said.

Susan Pearlman, a county principal administrative analyst who helped draw up the proposal, said the county is always willing to talk. But she said the county's revenue estimates are based on proprietary sales tax figures from the state Board of Equalization showing $12.8 million in annual local dispensary sales.

"We have no reason to doubt those numbers," Pearlman said.

Another point of contention is growers aren't being taxed, which could be trickier from a legal standpoint. Some counties have tried it, but it also represents a second layer of taxes that could drive up pot prices further.

Finally, operators say they fear a county tax would force customers to dispensaries to buy in the city of Santa Cruz, where there is no tax proposal — yet. County officials said they want to explore getting the city on board with the idea.

"It would makes sense to not create two different rates, if you will, within the county," said Supervisor Zach Friend, who chairs the county board.